Taiwan Commercial Banking Report

Key Issues

For a country whose banking system is far from mature, Taiwan's levels of loans, assets and deposits, when compared other countries on a regional and global basis, are fairly impressive. The latest figures indicate that per capita deposits total $25,840, implying a high savings level.

We predict that growth is likely to remain uninspiring, due to a combination of structural and economic factors. Taiwan's budget has run deficits for the past seven years and despite some moves to control spending and boost the tax take, we contend that this pattern will continue well into the future.

The average nonperforming loan (NPL) ratio of Taiwan's banks has remained fairly steady of late, coming in at 2.41%, according to figures released by the Financial Supervisory Commission for the month of July. Despite clear worries about NPL, Taiwan's banking system does appear to exhibit the potential for growth, with the banks being seemingly well capitalised and disciplined in their approach to lending.

Aside from their holdings of bonds, which have dropped nearly 19% year-on-year (y-o-y) to just more than 12% of total assets, most aspects of the commercial banks' balance sheets have been growing, albeit slowly. Loans have been growing significantly slower than assets, deposits and nominal GDP. The result of this is that the Loan/Asset, Loan/Deposit and Loan/GDP ratios have all fallen over the last year or so even though, by most standards, they were already at moderate, high and very high levels, respectively.

Changes To This Quarter's Commercial Banking Forecast

We have made a number of improvements to the commercial banking reports this quarter. In particular, we have collated information about banks' capital and bond portfolios.

We have looked at capital primarily because we wanted to produce a clearer picture of the banks' balance sheets and, in particular, the liabilities side. We are now much better able to quantify liabilities that are not deposits.

We collated information about the bond portfolios because we wanted to gain additional insights about the risks with which the banks are involved. Across all the countries that we have surveyed, the commercial banks are major investors in government securities. In some instances, the banks are large holders of bonds - by any standard. In other instances, the banks' holdings of securities represent a very substantial portion of their total assets.